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Fiscal Policy and Public Debt

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The Role of Fiscal Policy in Contemporary Economics session at 12th International Conference

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Fiscal Policy and Public Debt

  1. 1. Fiscal Policy and Public Debt Eugenia Correa Economics Faculty, UNAM 12th International Post Keynesian Conference Kansas City, Missouri September 25–28, 2014
  2. 2. Financial Markets doing their job ? (FT-4-09-2014)
  3. 3. Key Ideas on LAC-Fiscal Policy at the WC • Stabilization through Fiscal Consolidation as a condition for Growth; • Which means, abandoning fiscal stimulus policies • Increase in public debt in local currencies • Privatizations • Decentralization • Reduction and focus of Subsidies • Increased Tax revenue by VAT
  4. 4. Key ideas in Fiscal Policy for LAC, today • Fiscal discipline to avoid volatility, high inflation and devaluations that marked the 1980s and 1990s. (IMF, WB, OCDE, etc) • Moderate Fiscal Stimulus during a prolonged slump (debates about its size and duration) • Created strong ceiling (fiscal superavit, descend public debt in local currency) during growth periods, for eventual stimulus in long slump • The conventional view is still that expansionary fiscal policy could stimulate the economy, • Country risk rating based on sound fiscal policies
  5. 5. How Have Fiscal Policies Evolved? • Privatization and PPP • Capital and Income Concentration • For developing countries, also: • - no BC loans to Government • - growing rent transfers • - dollarization (total or partial) / off-shore credit circuit • - Fiscal consolidation and Austericy Policies • - Changes in Financial Structures: decline of Public Banks.
  6. 6. WC vs Now • Stabilization Policies • Reduction of Expenditure, except for debt service • (Temporary) Increase in revenues, by privatizations and non-income taxes • Only sound fiscal policies can improve a country´s rating - linked to the interest rates of private foreing debt • Long term Sustainability of public accounts • Transparency of public accounts • Privatization of Public Services and parts of public administration • Goverment Debt Ceiling • Privatization in Education and Health • Only responsable fiscal policies can improve the rating, call contry risk. That was no-linked to the interest rates of private foreing debt
  7. 7. LAC comprise a large region, with different pasts and institutions, so LET US SEE WHAT HAPPEN WITH THE SO CALL “PINK” COUNTRIES
  8. 8. Debate: • Some South America governments in 00s abandoned Neoliberal Policies towards Growth with Stable Public Policies. (Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela) • Those governments called “Pink South America’ countries” have moved away from IMF policy supervision. Which means less fiscal policy constraints? • Lets take a look …
  9. 9. Economic Growth LAc out-WC Governments GDP per capita 2003-2013 Argentina 5.9 Bolivia 2.8 Brazil 2.5 Ecuador 3.6 Paraguay 3.1 Uruguay 5.8 Venezuela 2.9 Source: Cepal, Balance Preliminar, several years.
  10. 10. Less Inequality ?
  11. 11. But, Less Poverty
  12. 12. Declining Public Debt 140 120 100 80 60 40 20 0 Central Government Gross Debt (as % GDP) Argentina Bolivia Brazil Ecuador Paraguay Uruguay Venezuela LAC 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  13. 13. Surplus Primary Balance - Public Sector
  14. 14. Surplus of General Balance before Crisis
  15. 15. Resilience in Public Budget LA Pink Governments Public Sector Interest Payments as % of Central Government Income 2003 2004 2005 2006 2007 2008 2009 2010 2011 Argentina 15 10 14 12 13 13 13 7 9 Bolivia 13 12 11 7 5 3 5 5 5 Brazil 41 31 32 30 27 23 23 14 17 Ecuador 17 15 13 13 10 5 3 4 4 Paraguay nd nd nd nd 6 4 4 2 1 Uruguay 28 23 21 20 18 14 14 11 11 Venezuela 22 16 11 7 6 6 7 7 11 Source: Cepal, Anuario Estadístico 2011 2010 and 2011 are Central Government
  16. 16. Preliminary Conclusions • Even “pink” countries, haven´t recovered sovereignty in fiscal policies. • External debt: strong renegociation gave more fiscal space for Argentina, as the previous default crashed debt ratings • Weak Fiscal Policies also mean Weak National States and Growing Ingovernability. • This also brings greater corruption and social violence? • International credit markets still impose macroeconomic conditions and therefore government economic policies • The political ideologies of the ´pink governments´ are left unfillfilled in economic terms.
  17. 17. Inequality limits growth, but can even tip the system?
  18. 18. www.olafinanciera.unam.mx

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